Downgraded banks include Cooperative Bank, Close Brothers and Metro Bank in the United Kingdom, Commerzbank in Germany, Swedish Swedbank, Gruppo Bancario Iccrea in Italy and Credit Europe Bank in the Netherlands and banking groups in Cyprus, Spain and Luxembourg.
Fitch said in his latest review of its noted Western European banks on Monday that the downgrades were mainly for companies for which the new economic outlook affects actions planned to improve profitability or capitalization.
They also include banks that are already vulnerable, for example due to low profitability or a weak competitive position.
In total, Fitch took 116 rating stocks from regional banking groups in its April review, with the bulk of the rating stocks changing their outlook to “negative” or giving banks a “watch negative” rating.
The revisions come amid the coronavirus pandemic which has shut down most of the European economy as the region struggles to contain the virus which has now infected hundreds of thousands of people.
In the current base scenario of Fitch’s global economic outlook, global gross domestic product will fall by 1.9% in 2020, with euro area GDP falling by 4.2%, before recovering in 2021.
“We really see this as something that is beyond a normal business cycle and it has triggered our review of Western European banks,” Christian Scarafia, senior director of Fitch Ratings, told CNBC on Tuesday.
“And the fact that we now have over 95% of our Western European bank ratings on a negative outlook indicates that we are seeing downside risks and expect a high number of downgrades in the future and that speaks to really at risk, mainly asset quality, profit and ultimately capitalization. ”
The limited number of downgrades, 10 in total, shows that most Western European banks have entered the crisis with room for maneuver in their notes, Fitch noted. Those who have been demoted are “weaker banks, or banks that have to take action that will be much more difficult now,” Scarafia told CNBC “Squawk Box Europe”.
Downgrades, he said, concern “banks that depended either on growth or on taking steps to improve profits, improve asset quality, will find it much more difficult to do so in the current crisis , which has really been where we’ve seen the bulk of these downgrades. “
Fitch Ratings revised its portfolio of rated Western European banks between March 20 and April 7 in response to the sharp downward revision to global growth forecasts.
Fitch’s baseline sees the health crisis contained in the second half of 2020, leading to a recovery as the locks are removed and the political stimulus measures take effect. But even assuming this level of recovery, euro area GDP will not reach 2019 levels by the end of 2021, “which highlights the severity of the shock,” said Fitch.